The emergence of financial technology (fintech) is disrupting the traditional banking industry (Mention, 2019). Fintech uses emerging technologies such as blockchain, artificial intelligence (AI) and smart contracts to provide novel and enhanced financial services in the financial sector (Thakor, 2020; Mention, 2019). Fintech companies (fintechs) are innovating and offering products that only banks have offered before in areas such as payments, retail banking, lending, and wealth management (Statista, 2021). The growing number of fintechs using new technologies to develop new products and services pushes traditional institutions to change existing operations and offerings as competition grows between the participants.
After the financial crisis in 2008, fintechs have gained market share by offering innovative technology solutions in the traditional banking industry and asset management field (Chemmanur, Imerman, Rajaiya & Yu, 2020). The rise of fintech is expected to affect the banking industry the most with regulation differences, faster innovation processes and enhanced product development (Sangwand, Harshita, Prakash & Singh, 2019; Sloboda &
Demianyk, 2020). Fintechs create challenging competition to traditional banks however banks can also benefit from fintech (Chemmanur et al. 2020). Integrating fintech solutions into banks services and products can enhance customer service, strengthen customer relationship, and endorse competitive advantages. This can enhance the bank's profitability and overall customer loyalty. (Chen, 2020; Moussauvou, 2020) Due to this, banks have started to invest in fintech innovations and began co-operating with fintechs to stay on top of the competition (Chemmanur et al. 2020).
Research of fintech is exceedingly challenging since the field of fintech is very new and changing constantly as new technologies come to market (Bollaert, Lopez-de-Silanes &
Schwienbacher, 2021) As fintech changes and its impact on the banking industry fluctuates, new research is needed to keep up with the changes and to underpin what the latest technology solutions are and how these solutions affect the banking industry. Therefore, it
is crucial to study fintech's integration in the banking industry and how fintech affects the banking industry overall.
1.1 Research questions and objectives
Fintech companies can change rapidly and shift the direction of the financial sector as new technology innovations come to the market. Due to fintech’s rise, banks are encountering a challenge to meet the new needs of customers and facing a need for development in the existing business models. It is important to understand how banks are changing and what banks future operations and businesses might look like. The objective of this research is to increase the readers knowledge of fintech’s effects on banks. The main research question aims to present comprehensively how the banking industry has been affected due to the rise of fintech. The sub question aims to provide insights of how fintech shows in traditional banks. The research questions complement each other to bring forth an explicit view of how fintech impacts the banking industry.
The main research question is:
Q1: How is fintech affecting the banking industry?
The sub question is:
Q2: What changes have banks made to adapt to the rise of fintech?
1.2 Research methodology and limitations
The first part of this research introduces a theoretical framework by gathering and summarizing relevant literature of fintech and the banking industry. The research's second part consist of an empirical part which is conducted as a case study. The materials for the case studies are gathered from the companies’ websites. The material consists of annual reports, press releases and other reports. The empirical part presents what fintech solutions
banks use and what kind of partnerships banks have with fintechs. The case study’s intent is to clarify how banks have adopted fintech and which kind of technological direction the banks are headed for.
Fintech undoubtedly has an impact on the finance sector but there is no precise evidence that fintech will replace the traditional finance sector (Bollaert et al. 2021). However, technology solutions will have a comprehensive contribution in banks future success (Stoica & Sitea, 2021). Fintech is going to be more important to banks in the future, consequently this research is limited to study the banking industry. The empirical part of this research is limited to study banks in the United States (U.S.). The U.S. market is one of the biggest markets in the world and it is globally followed. The case companies are limited to study the two biggest banks in the U.S.
1.3 Structure of the thesis
This research is conducted in a way that the reader expands their knowledge of fintech and comprehends clearly how fintech influences the banking industry. Firstly, this research defines fintech and presents the main categories of fintech. Fintech is a fairly new topic that does not follow a specific theory or an outline, and therefore it is important to clarify the definition. The research continues to give an overview of fintech and the banking industry and then presents what challenges fintech causes for the banking industry. The last section of the theoretical part presents how the banking industry can use fintech to create advantages and benefit from it. The research then continues to the empirical part. The empirical part studies how the two biggest banks in the U.S. have managed through the rise of fintech and how fintech shows in these banks. The empirical part firstly presents research methods and an overview of the case companies continuing to present the results. Lastly this research presents conclusions, limitations, and recommendations for further research.